Introduction to Shared Equity. Homeownership

Homes That Last: Introduction to Shared Equity Homeownership

Shared Equity Homeownership What is counter-cyclical stewardship? What is shared equity homeownership? Features that distinguish this sector from other housing supported by the market and the state Features that distinguish one model of shared equity homeownership from another Why have stewardship and shared equity homeownership been gaining ground in recent years? 2009 Burlington Associates

Homeownership Policy

Housing Production LAND ASSEMBLY SITE REMEDIATION INFRASTRUCTURE DEVELOPMENT HOUSING DESIGN (including energy efficiency) HOUSING CONSTRUCTION (including conversion or rehab of existing buildings) INCLUSIONARY SET-ASIDES (incentive zoning or inclusionary zoning)

Homeownership Policy

Homebuyer Services DOWNPAYMENT ASSISTANCE LOW-INTEREST MORTGAGES FAIR LENDING (CRA) HOMEBUYER COUNSELING FAIR HOUSING ENFORCEMENT HOMESTEAD EXEMPTIONS & TAX DEDUCTIONS

Homeownership Policy

Homes At Loss: Cyclical Threats to Homeownership Affordability evaporates when markets are hot Quality erodes when markets are cold Security vanishes when creative financing collides with collapsing real estate values

Homes That Last: the Case for Counter-cyclical Stewardship

Stewardship PRESERVE the affordability of publiclysubsidized, owner-occupied homes PROMOTE the maintenance of publiclysubsidized, owner-occupied homes PREVENT the loss of publicly-subsidized, owner-occupied homes, especially in the face of foreclosure

Either/or Landscape of Affordable Housing Privately-owned Publicly-owned Owner-occupied Tenant-occupied Price-controlled Market-priced 2009 Burlington Associates

Breaking Out of the Boxes Privately-owned Market-priced Owner-occupied Tenant-occupied Price-controlled Publicly-owned 2009 Burlington Associates

Continuum of Third Sector Housing 2009 Burlington Associates

What s in a name? Third sector housing Nonprofit housing Private, nonmarket housing Nonspeculative housing Forever housing Perpetually affordable housing Limited equity homeownership Shared equity homeownership Homes that last Developer that doesn t go away 2009 Burlington Associates

What do these models have in common? Privately-owned. Unlike housing that is owned and managed by a public housing authority, the housing is owned by individuals or a privatesector corporation. Nongovernmental housing. Price-restricted. Unlike housing that is priced through the market, rents or purchase prices are set through a formula designed to preserve affordability over time. Nonmarket housing. Socially-protected. Unlike housing where each occupant must go it alone, there is a sharing of risks and responsibilities. Backstopping security of tenure. 2009 Burlington Associates

Continuum of Third Sector Housing 2009 Burlington Associates

Shared Equity Homeownership Distinguishing Features Occupant s interest. Occupants are owners, not renters. Rights, responsibilities, risks, and rewards of the owner s interest (equity) are shared between the homeowner and a public or not-for-profit entity. Legal mechanism. Each model has its own way of perpetuating the home s occupancy and affordability... for many years. Organizational structure. Each model has its own way of monitoring controls and backstopping security... stewardship. 2009 Burlington Associates

Shared Equity Homeownership What It Is NOT Not rent control Not communal housing Not shared appreciation financing Not for everyone 2009 Burlington Associates

Shared Equity Homeownership What Is Shared? Rights of homeownership Responsibilities of homeownership Risks of homeownership Rewards of homeownership 2009 Burlington Associates

Rewards Community s interest in preserving affordability Homeowner s interest in building wealth 2008 Burlington Associates

How do homeowners build wealth? Forced savings: Return of downpayment Retirement of debt (amortization) Voluntary savings: Stabilization of housing costs Capital improvements Tax expenditures: State homestead exemptions Federal income tax deductions Public subsidies: grants & forgiven loans Capital gains: appreciating value of home 2009 Burlington Associates

Sharing Equity... To build wealth for a present generation of lower-income households who become homeowners because of the public s investment; and To preserve access for future generations of lower-income households, allowing them the same opportunity to acquire homes and build wealth. 2009 Burlington Associates

A New Way Home Sharing Equity to Build Wealth 2009 Burlington Associates

Deed-restricted Houses & Condominiums Occupant owns the land and the building (or holds a units deed for a condo). Right to sell or sublet has been removed from the owner s bundle of rights. Contractual control over the property s occupancy, eligibility, subletting, and resale enforced through an affordability covenant attached to the deed. Although covenants are often believed to be self-enforcing, a public agency or a private nonprofit is usually in the picture, monitoring and enforcing the covenant. 2009 Burlington Associates

Community Land Trust Dual ownership: Occupant owns the building; a nonprofit (the CLT) owns the underlying land. Many rights of use and resale are removed from the homeowner s bundle of rights. Contractual control over the property s occupancy, eligibility, subletting, and resale enforced through a ground lease. A nonprofit corporation with an open membership and a tripartite board is responsible for monitoring and enforcing lease provisions and for backstopping security of tenure. 2009 Burlington Associates

Limited Equity Cooperative Occupant is a member and shareholder in the corporation that owns the land and building. Right of occupancy is protected through a proprietary lease Controls over use are enforced through the lease and house rules. Controls over affordability are enforced through the share certificate and the co-op s bylaws The board of the cooperative oversees the use and upkeep of common elements. It also manages the resale of shares when members leave the cooperative 2009 Burlington Associates

Rights & Roles Limited Equity Cooperative Articles of Association Bylaws Member Control Occupancy Tenant Proprietary Lease House Rules Ownership Shareholder Subscription Agreement Stock Certificate 2009 Burlington Associates

Why is this sector growing? ECONOMIC: Change in economic climate ORGANIZATIONAL: Flexibility of the models (hybrid vigor) POLITICAL: Shift in municipal policy 2009 Burlington Associates

Climate Chasing the Dream of Homeownership

Climate Urban Housing Crisis, 2006-2010

Climate Addressing the Risks of Homeownership

Backstopping Security of Tenure National Foreclosure Rate 2.97% CLT Foreclosure Rate 0.5% National Default Rate 7.0% CLT Default Rate 1.4%

Why do CLTs and other shared equity homes have fewer defaults and fewer foreclosures? Preparation for homeownership Disclosure of rights, responsibilities, risks, and rewards that are owned and not owned Selection that matches homebuyer to home Protection against predatory lending Approval of post-purchase improvements Notice from lender of mortgage arrears Authority to cure mortgage defaults Option to purchase homes out of foreclosure 2009 Burlington Associates

Climate Making the Case for Counter-cyclical Stewardship

Hybrid Vigor Single-family Homes

Hybrid Vigor Multi-family Condominiums & Rentals

Hybrid Vigor Multi-family Housing Cooperatives

Hybrid Vigor Manufactured Housing Communities

Hybrid Vigor Mixing Housing and Commercial Space

Hybrid Vigor Commercial Space/Job Creation Commercial Greenhouses Dudley Street Neighborhood Initiative Boston, Massachusetts Bus Barn Conversion Restaurant, Laundromat, & Job training center Champlain Housing Trust Burlington, Vermont

Hybrid Vigor Community Facilities

Hybrid Vigor Community Gardens, Neighborhood Parks & Community Supported Agriculture Troy Gardens Madison Area CLT Madison, Wisconsin

A Shifting Municipal Policy From Subsidy Removal to Subsidy Retention. Instead of letting assisted homeowners remove any public subsidy at resale, the focus has shifted toward retaining that subsidy in the home. From Temporary Affordability to Permanent Affordability. Instead of losing affordability at resale, the focus has shifted toward maintaining affordability for many years. From Ignoring Risk to Backstopping Security. Instead of asking low-income homebuyers to go it alone, the focus has shifted toward sharing the responsibilities and risks of homeownership.

Policy Shift Municipal Investment Most interaction between CLTs and municipal officials has been marked by benign indifference, with neither party doing more than is minimally required to meet whatever legal obligations each might have with regard to the other. The CLT Handbook, 1982 Over the past decade, a growing number of cities and counties have not only chosen to support existing CLTs but also to start new ones, actively guiding their development and sponsoring their affordable housing initiatives. The City-CLT Partnership, 2008

Municipal Support for CLTs Albuquerque, NM Athens, Georgia Austin, Texas Bellingham, Washington Boston, Massachusetts Boulder, Colorado Burlington, Vermont Chapel Hill, NC Chicago, Illinois Delray Beach, Florida Duluth, Minnesota Highland Park, Illinois Irvine, California Madison, Wisconsin Minneapolis, Minnesota Petaluma, California Portland, Oregon Sarasota, Florida Syracuse, New York Washington, DC

When Has Shared Equity Homeownership Prospered? Public funding to make resale-restricted homes affordable and competitive Private financing for secure mortgages Steward to protect homes created with public dollars or public powers Steward to preserve income mix in revitalized neighborhoods Community acceptance & accountability Sizable scale to pay for stewardship 2009 Burlington Associates

When Has Shared Equity Homeownership Struggled? Public subsidies too shallow to provide production, services, and stewardship Private financing unavailable Competition from gov t programs Glut of low-priced, unrestricted homes Too little community organizing and homebuyer education Too small a scale to build a sector and to cover the costs of stewardship 2009 Burlington Associates

Homes That Last Introduction to Shared Equity Homeownership John Emmeus Davis Burlington Associates in Community Development www.burlingtonassociates.com